Interactive Brokers March 2008

OneChicago is the Exchange for Single Stock Futures in the U.S. OneChicago Overview

Structured Open and Innovative Fully for Transparent Products Electronic Liquidity Markets

• Over 500 single stock futures • State of the art • Lead Market • Bid/Offer technology using Maker transparency • ETF futures: System* and market ® ® the CBOEdirect® DIAMONDS ,SPY depth XLE, XLF, XLU, XLV match engine • Continuous • Access to two-sided • Anonymity • PowerSharesQQQ®, markets and OneChicago from • In US, Trade Russell 2000® fast fills CBOEdirect or from • 1 SSF contract = 100 GLOBEX® • WYSIWYG securities or shares of underlying • CBOEdirect “What you see futures stock supports FIX and is what you accounts • 1 ETF Future CMi APIs get” quotes contract = 1000 and execution shares of stock, DIA contract=100 shares

*For products listed on www.OneChicago.com with an * no LMM will be responsible for making continuous two-side markets. The Problem

Trading costs for stocks come in the form of commissions, execution cost, and financing costs.

A great deal of attention is paid to commissions which are explicit, and with the advent of smart routers, more attention is being paid to execution cost

But despite the fact that most trade cost comes from financing charges or lack of interest paid, little attention is focused on financing rates because they are not transparent.

Long Stock Vs. SSF Using 100 shares of RIMM at 115 and an interest rate of 5.75% and putting up 50% margin and holding the trade for 60 days, versus buying an SSF.

• Borrowing 50% of the position • SSF cost for the sixty days at 5.75% will cost $55.11 for 60 $88.00(buy SSF $115.88) days • Performance Bond (20%*$115.88*100)=$2317.60 $55.11=$5750.00*(5.75%/360) • Interest earned $17.23= *60day (20%*$115.96*100* (4.46%/360)* 60days • Invest difference of $5750- • No dividend $2317.60 (SSF Bond) =$3432.40 • Total Cost per 100 shares • Interest earned $55.10 $25.51=$3432.40*(4.46%/360) *60 days • SSF cost: $45.26

Total savings on 100 shares using SSF v. Stock = $9.84 Exchange for Physical (EFP) •An Exchange for Physical (EFP) allows the swap of a long or short stock position for a Single Stock Future (SSF) or vice versa. •SSFs have an interest rate built into their price that is determined competitively by numerous market participants. •Like Repos and Reverse Repos in the debt markets, EFP's provide a cheap and efficient financing vehicle. •The EFP transaction is one where you sell the stock and buy the SSF, or you buy the stock and sell the SSF. •You do the two legs as one transaction via an EFP. The Solution - EFP

Long Stock

If you carry a long stock position on margin, the EFP gives you the opportunity to reduce your financing cost because you will likely be able to sell the stock and buy the SSF (forward price) at a premium that is lower than your margin rate. The Solution - EFP

Short Stock

If you are short the stock, you receive interest on the credit balance generated by your short sale, but this interest is less than the premium you would receive by selling the SSF and buying back the short stock. Short Stock Vs. SSF Go short 100 shares of RIMM at 115 with 100% of the stock value held in cash as Margin , interest earned on short sale proceeds. • Sell SSF $115.88 income earned • Interest earned= $85.48 $88.00 ($115.88-$115.00) • Interest earned on performance bond • (100% * $115.00 * (4.46% $17.23=(20%*$115.88*100* /360) * 60 days ) (4.46%/360)* 60 days • Opportunity gained : invest • No dividend paid $11,482.40= $13,800-$2317.60(SSF margin) • Interest earned $85.35=$11482.40*(4.46%/360)* 60 days • $190.58=$88.00+$17.23+$85.35

Income earned from Selling 1 SSF (100 shares per contract) vs. Selling 100 shares of Stock = $105.10 The Solution - EFP - Excess Cash

Excess Account Balance

If you have excess cash in your account and would like to earn a higher return, you could buy stock and sell a SSF (a forward price) at a premium higher than the interest your cash generates. Interest on Cash Balance vs. Synthetic Yield EFP Term of EFP , trade period-60 days • Cash Balance-$250,000 • Interest Earned : $1,858.33=$250,000*(4.46%/360)*60days

• Synthetic Yield EFP – (Buy1800 shares of Stock $120.00, Sell 18 SSF contracts at $121.00).

• Capital required : $226,800= (1800*$120.00=$216,000)+Margin for Synthetic EFP

(5% * $216,000=$10,800)

• $1,800.00 = (18 contracts(100 shares per contract)) *$1.00($121.00-$120.00)

$172.45 = $23,200($250,000-$226,800)*(4.46%/360)*60 days

$1,972.45 Income Earned

Extra income $ 114.12 OneChicago Quote Vendors • Delayed snapshot quotes and daily market summaries are available on OneChicago’s Web site at www.OneChicago.com

• For real-time quotes, traders should inquire directly with their current vendor for subscription information, or contact one of the vendors listed below.

Belzberg Technologies Inc. Moneyline Telerate (HYTS®) Reuters Bloomberg Thomson Financial – ILX ComStock Townsend Analytics CQG, Inc. TrackData Data Transmission Network Trade Station Technologies (DTN) Subject to change. eSignal For complete list see OneChicago Web site FutureSource Security futures trading involves the risk of loss, including the possibility of loss greater than your initial investment. Security futures may not be suitable for all investors. Consult your broker or financial advisor before trading.

All investors will be required to review risk disclosure materials and meet suitability requirements established by their brokers.

You should carefully review all disclosure statements and ensure you understand the risks of trading security futures. ©2008 OneChicago LLC. All rights reserved The information in this presentation has been compiled by OneChicago, LLC for general information purposes only. Although every attempt has been made to ensure the accuracy of the information, OneChicago assumes no responsibility for any errors or omissions. Examples herein are hypothetical situations used for explanation purposes only and should not be considered investment advice. All matters pertaining to rules and specification herein are made subject to and are superceded by the official OneChicago rules.

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. PowerShares QQQ® is not sponsored, endorsed, sold or promoted by either PowerShares Capital Management LLC, The Nasdaq Stock Market Inc. or the PowerShares QQQ Trust, Series 1 (together “ETF Related Parties”). ETF Related Parties make no representation or warranty, express or implied, to the owners of the PowerShares QQQ® or any member of the public regarding the advisability of trading in the Contract(s). ETF Related Parties only relationship to OneChicago is the licensing of certain trademarks and trade names of PowerShares and Nasdaq respectively. The ETF Related Parties are not responsible for and have not participated in the determination of the timing of, prices at, or quantities of the PowerShares QQQ® to be listed and have no obligation or liability in connection with the administration, marketing or trading of the PowerShares QQQ®. The PowerShares QQQ® have not been passed on by the ETF Related Parties as to their legality or suitability. The PowerShares QQQ® are not issued, endorsed, sold, or promoted by the ETF Related Parties. The ETF Related Parties make no warranties and bear no liability with respect to the contract(s).”

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Customer Inquiries: 312-424-8500 [email protected] 312-424-8515 Henry Robinson-Duff

Web site: www.OneChicago.com > see full product listing > get delayed snapshot quotes > view daily market summaries > explore our Learning Center > Use the calculator to compare SSF with equities.